Private Debt typically offers higher yields than public credit, partly due to the illiquidity premium investors receive for committing capital to less liquid loans, as well as a complexity premium for the expertise required to access, source and structure these loans.
Executive Summary
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As traditional banks retreat from lending markets, Private Debt is stepping in to fill the gap. From nearing USD 2tn globally today, Private Debt’s assets are expected to reach USD 3.5tn by 2028. Why is this? Private Debt offer higher yields than public credit and is less sensitive to short-term market volatility, so works well as a portfolio diversifier.
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Growing allocations to Private Debt are driving some convergence with Public Debt, although both continue to exhibit distinct behaviours. The scale up of the market is driving partial convergence in risk perception and processes, yet material differences persist — notably the performance drivers — creating complementary, not fully substitutable, opportunities for diversified fixed income portfolios.
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Going forward, we’ll see more retail investors allocating towards private debt. This means the industry needs to evolve and develop new products and structures that are suited to retail investors’ needs. This includes evergreen funds, development of a secondary market, lower minimum investment requirements as well as enhanced reporting and fintech distribution to improve liquidity.
You can now read the full whitepaper at the link below
